Cash flow refers to the new money that is created by an investment. It usually occurs in the form of interest, dividends or rent. Basically, cash flowing assets pay you to own them.
We seek out solid performing investments that also provide good cash flow, essentially buying at a good price. These dividends seldom change, regardless of price appreciations or drops; they remain consistent despite market volatility.
Think of cash flow in terms of a rental property investment: the property’s value will go up and down over time, but the rental income you receive remains fixed. The same philosophy can be applied to assets such as high dividend paying stocks.
The term portfolio refers to any collection of financial assets such as cash. Portfolios may be held by individual investors and/or managed by financial professionals, hedge funds, banks and other financial institutions. It is a generally accepted principle that a portfolio is designed according to the investor’s risk tolerance, time frame and investment objectives.
The monetary value of each asset may influence the risk/reward ratio of the portfolio and is referred to as the asset allocation of the portfolio. When determining a proper asset allocation one aims at maximizing the expected return and minimizing the risk.